How Do My Employees Open an HSA Account?
5 Facts on Opening an HSA Account
- Beginning January 1, 2004 individuals and their employers
and family members under the age of 65 can make contributions
to a Health Savings Account (HSA).
- A person can make tax-deductible
contributions to an HSA even if he/she does not itemize deductions
on his/her tax return.
- A company can make tax-free contributions
to workers’ HSA
accounts.
- Employer contributions are treated as "employer-provided
coverage for medical expenses" under an accident or health
plan, and are excludable from the employee's gross income.
- 5.
All contributions are not subject to the FICA, Federal Unemployment
Tax Act or the Railroad Contributions Tax Act.
HSA Accounts Can Be Used to Pay for:
- Un-reimbursed medical expenses
- Retiree health insurance
- Prescription drugs
What If Employees Don’t Use
Up All Their HSA Funds?
Unused funds in an HSA account can continue to grow over time
and don’t need to be used up by year-end (which is the
case for Flexible Spending Accounts).
- HSA funds can grow in the account, tax-deferred.
- There are
no taxes on any investment growth while the money remains in
the account.
- No federal tax is charged if the money is withdrawn
for medical needs.
How Do My Employees Open an HSA?
A person can enroll in an HSA through an employer health plan,
if such an option is available, or enroll in such a plan on their
own.
Aetna Inc. says it has signed 25 large employers and over 200
small employers, and is rolling out a plan for individuals. According
to the Treasury guidelines the HSA money can be put into any
investment that has been approved for IRA investing.
Understanding the HSA Cash Flow:
- Employee and employer pay monthly premiums to a high-deductible
health plan.
- An individual contributes to his/her HSA through
a pretax payroll deduction that can be up to the amount of
the deductible
of their health plan.
- The employer can also elect to contribute
to the employee's HSA.
- The funds in the HSA account earn
investment income free of tax.
Example: A member that has a health plan with a $1,000 deductible
and 20% coinsurance incurs a $10,000 medical bill.
- The individual will pay the $1,000 deductible out of his/her
HSA.
- The individual pays $1,800 out-of-pocket co-insurance.
- The
health plan pays the $7,200 due on the bill.
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